Full text of "Forbes"
80 In a digital world, can
the country's daily newspa-
pers keep the lucrative want
ad business to themselves?
Without classified advertising, newspapers would
be in desperate straits. Can they keep their grip on
the business as it moves from newsprint to modem?
By David C. Churbuck
LET'S SAY you just moved to Chicago
and want an apartment. You pay
$1.50 for a Sunday Chicago Tribune
and paw through its 2-pound classi-
fied section. Two hours later you have
circled 32 ads diat look promising — 2
bedrooms, no more than $1,000 a
month, within 3 miles of your office.
What a waste — of your time, of
newsprint and of fuel to schlepp the
classified section all over town, mostly
to subscribers who don't even glance
at the classifieds because they aren't in
the market for its wares. How much
better it would be to sort the apart-
ment listings on a computer attached
to an on-line service.
But the Tribune Co., publisher of
die Chicago paper, needs those classi-
fieds. These ads brought in $385
million last year for the Trib and the
company's other dailies. That's a lot
of revenue for a newspaper group
whose operating income (profits be-
fore depreciation, interest and taxes)
was only $359 million.
Put it this way: Minus classifieds,
the Chicago Tribune would be a pale
image of what it is today. Most metro-
politan newspapers are in the same
boat and so are many weeklies. Classi-
fied advertising hauled in $12.5 bil-
lion for daily newspapers last year,
according to Miles Groves, chief
economist of the Newspaper Associa-
tion of America. That represented
37% of their total revenue and a 12%
increase over classified revenue the
Newspaper publishers are well
aware of the threat. As advertising
goes digital, they want to preserve the
business for themselves. Tribune Co.,
which doesn't relish buying maybe
50,000 tons a year of paper on which
to print its classifieds, publishes classi-
fieds on America Online and its help
wanted section on die Internet.
But can the country's 1,538 dailies
keep the lucrative want ad business to
themselves? These papers, almost all
of them de facto monopolies, can
readily fend oft" competitors in the
print medium. That's because the
cost of entry to a potential invader —
replicating the fleet of delivery trucks
and newsstands, for instance — is just
too high. Not so electronic classifieds.
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From aviation to yachting, dating to
jobs, the Internet's World Wide Web has
embraced classified advertising as one
vehicle for making money on-line.
Any enterprising fellow can get into
Here's one: Gary Kremen, 31,
principal owner of Electric Classi-
fieds, Inc. in San Francisco. With the
help of S 1.7 million in venture capital
from outsiders — including Ronald
Posner, a software industry veteran
(Forbes, Apr. 29, 1991)— Kremen
has opened a classified advertising
business on the Internet's World
Wide Web. So far this two-month-old
service is limited to lonely heart ads
(http://www.match.com) and has
only 3,000 listings. But this is just a
warm-up. Next year Kremen will ex-
pand into real estate and used-car ads.
Electric Classifieds is priced to at-
tract business. You don't pay to post
ads or to read them. If you want to ask
an advertiser for a date, you will pay
$5 to $8 to send an E-mail message to
that person. The rental and car ads
will work the same way: The person
responding to the ad will pay to get in
touch widi the advertiser.
The digital world knows no geo-
graphic bounds. It happens that al-
most all of Kremcn's business to date
has come from the San Francisco area,
but there's no reason he can't take ads
just as easily from Houston or Chica-
go. Viewers can electronically screen
ads, if they want, in order to see only
those from nearby. Internet connec-
tions across the country arc just as
cheap as connections across town.
It doesn't cost much to run an on-
line service like this. Software captures
the necessary data from advertisers;
software dispenses the information to
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viewers, who can sort or screen it just
about any way they want.
Don't count the newspaper out yet.
The medium has faced technological
threats before. Newspaper publishers
saw the value in broadcast licenses
decades ago and snapped many of
them up. Newspapers were willing to
pour tens of millions of dollars into
videotex, a sort of on-line sendee that
was before its time and failed.
The newspaper industry was also,
beginning in the 1970s, the first big
user of networked word processors.
Forbes n July 3, 1995
Electric Classified's Gary Kremen
His system sorts ads according to the reader's location and preferences.
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Welcome lo WorldPort Classified Advertising!
Modem descendants of tliose early
data processing systems are now used
to produce die classifieds diat go into
Responding to the obvious threats
to their revenue base, newspapers not
only are launching their own on-line
efforts, but also are banding together.
This spring, nine big newspaper
chains formed the New Century Net-
work to establish a common technol-
ogy for sharing stories and adverdsing
over the Internet.
Says Eric Meyer, who runs an on-
line journal about on-line media
(http: //www.newslink.org), ''News-
papers have a tremendous advantage,
if they don't blow it, and that's the
infrastructure to take die ads, run the
ads and bill for the ads."
One thing is certain, however:
Even if the newspapers do hang on to
the business, it will become less profit-
able lor them, especially if they must
compete widi vendors who charge for
the ads only on a per-inquiry basis.
Here's another threat to newspa-
pers: The big winners in on-line classi-
fieds may be neither newspapers nor
tiny upstarts. They may be media
giants with name recognition and
software or communication skills. An
mci or a Microsoft could emerge with
a big slice of that $12.5 billion pic.
Bottom line: Newspaper stocks,
despite Warren Buffett's well-known
fondness for them, are at best a hold.
Stocks of newsprint producers, too,
are endangered: No matter who cap-
tures the on-line medium, the days of
the 2 -pound classified section arc
Forbes n July 3, 1995